Can in-house counsel be trusted?

A famous quote by George Orwell, "If liberty means anything at all, it means the right to tell people what they do not want to hear,” portrays the art of whistleblowing quite well. Whistleblowers are workers who expose waste, fraud, and abuse in the workplace. They are the life-blood of law enforcement against white-collar crime, and they create a safer and healthier environment for co-workers and members of the community.

The rewards of exposing corporate wrongdoing have increased in the U.S., a country where whistleblowers can actually claim a bounty of up to 30 percent of imposed fines. These days, the only trusted insider is the in-house lawyer, bound by very strict ethics rules, but even this confidentiality is under threat.

In fact, whistleblowing advocates report an increase in the number of lawyers prepared to snitch for money since the passage in 2010 of the Dodd-Frank Act, which increased whistleblower protections, according to The Economist. Reportedly, no lawyer is known to have received a payout, though it is impossible to be sure as recipients can remain anonymous.

The Internal Revenue Service paid $53 million in awards to whistleblowers in fiscal 2013 and collected $367 million based on information provided by tipsters, according to the agency's latest report to Congress. This growing federal support for whistleblowers has triggered the question, “Are we secret-keepers or gatekeepers?” Barry Temkin of Mound Cotton Wollan & Greengrass, told The Economist. Another question for lawbreaking corporate executives, he said, is, “Will counsel throw me under the bus for a few million?”

Some whistleblowers are looking to exploit a gap between ethics rules and federal laws, according to Timothy O’Toole of Miller & Chevalier. America’s lawyers are licensed by its states, which allow confidentiality to be breached in only a few narrow cases, like client perjury, or to prevent a serious crime being committed.

Last year, New York lawyers’ association concluded that even in the rare cases where state law allows disclosure, lawyers should be prevented from claiming a bounty because the prospect of financial gain would cloud their professional judgment. But rules written by the SEC since the Sarbanes-Oxley corporate-governance reforms of 2002 permit disclosure in broader circumstances, including civil violations of securities laws, and the award of cash bounties.

Overall, the question that matters most concerns the long-term impact that whistleblowing lawyers would have on the quality of legal representation. O’Toole explained, “It’s hard to give good advice to someone who doesn’t feel comfortable speaking with you frankly.”